can someone explain how to hedge a trade in forex?

@asamoah_the_great - 8 months ago - Forex Brokers

hello MTL members, please I have a small request to be taught how I can hedge an open trade in the forex market.

Great of you to ask Asamoah!

To hedge an open trade for one instrument, you need to open another trade for an instrument that is negatively correlated to the open trade, so that losses from the first open trade will be offset by gains from the second/newly opened trade.

For example EUR/USD and USD/CHF are negatively correlated so when the price of EUR/USD is falling, that of USD/CHF will be rising.

If you opened a EUR/USD long trade and it is in a loss because EUR/USD is falling, you can open a USD/CHF long trade because USD/CHF will be rising.

The profit from the USD/CHF trade will offset some of the losses from the EUR/USD trade. The purpose of hedging in forex is to manage risk and lower your net loss.